Goodfood Market Corp.

Goodfood Market Corp (TSX: FOOD) is a Canada based online grocery company which delivers fresh meal solutions and grocery items and related products to its customers.

Q3FY20 Financial Highlights: Goodfood impresses with its quarterly numbers and posted a positive bottom-line, which is commendable. Revenue of the Company soared ~74% on y-o-y basis to CAD 86.6 million, driven by considerable growth in the online grocery shopping segment in Canada underpinned by changing consumer behavior. Gross profit stood at CAD 24.9 million, as compared to CAD 14.09 million in the previous corresponding period (pcp), thanks to robust top-line growth. However, gross margin declined to 38.2%, reflecting a reduction of 3.4 percentage points due to a surge in labor costs and other input costs. Adjusted EBITDA stood at CAD 5.98 million, as compared to a loss of CAD 2.38 million in pcp, depicting a margin of 6.9%, as compared to a negative margin of 4.8% in Q3FY19. Net income, at the end of Q3FY20, stood at CAD 2.78 million as compared to a loss of CAD 3.64, a year ago. The Company made a capital investment of CAD 1.9 million, which was used to construct Vancouver fulfilment facility followed by investment in automation equipment. The above facility would be used for partial in-housing of ready-to-eat production.

Q3FY20 Financial Statement Highlights (Source: Company Reports)

Risks: The Company might face some challenges in operations due to temporary supplier closures and substitution of unavailable ingredients. Further, limited availability of workforce and added costs due to sanitary measures might build pressure on operating cost.

Stock Recommendation: The stock generated a solid return of 92% so far this year and outperformed the benchmark index by ~110%. The group operates in the online grocery industry and is witnessing a higher demand. During the quarter, the group posted higher subscriber base underpinned by brand promotions and innovative marketing campaigns. The company invested in automation and additional facilities and also enhanced its product offerings. The group is planning to invest CAD 10 million in the next quarter to enhance its infrastructure. The company reported positive bottom-line for the first time in its history, which is a key positive. We expect the demand for the company’s offering to remain high as consumers are expected to follow social distancing measures in the foreseeable future. The company seems to have ample liquidity with net cash of ~CAD 58 million. Investors should note that the stock was trading above the 200-days simple moving average of CAD 3.42, indicating a bullish trend. On the valuation front, the stock is available at EV to Sales of 1.0x on NTM basis, as compared to 1.4x of industry (Consumer Non-Cyclicals) median. Hence, we recommend a ‘Hold’ rating on the stock at the closing market price of CAD 6.02 on July 08, 2020.

FOOD Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Rogers Sugar Inc

Rogers Sugar Inc (TSX: RSI) is a Canada based sugar manufacturing company, which is engaged in refining, packaging, and marketing of sugar and related products.

The company informed the appointment of Mr. Mike Walton for the post of Chief Operating Officer of Lantic Inc. and & President of The Maple Treat Corporation. Recently, Mike was serving as the Vice President, Sales and Marketing. The company also notified that Mrs. Manon Lacroix would retire from his post of Vice-President, Finance, CFO and Secretary and would serve the company till August 15, 2020.

Q2FY20 Financial Highlights: Rogers Sugar Inc announced its quarterly results, wherein the company reported revenue of CAD 199.13 million, as compared to CAD 189.25 million in Q2FY19. The increase was driven by improved performance from both sugar and Maple syrup segments. The company reported production of Sugar and Maple at 175,226 metric tonnes and 12.89 million pounds, respectively as compared to 175,040 metric tonnes and 11.033 million pounds in the previous corresponding period (pcp), respectively. Gross profit stood at CAD 19.39 million, as compared to CAD 28.212 million in the pcp. Adjusted EBITDA remained more or less flat at CAD 16.5 million. During the quarter, the company completed the final step in the maple segment footprint optimization project and moved to the new Granby location and also commissioning of the new bottling line continued. The company reported net earnings at CAD 0.96 million, significantly lower than CAD 8.01 million the previous corresponding period due to a loss from the mark-to-market of derivative financial instruments in the current quarter. 

Q2FY20 Income Statement Highlights (Source: Company Reports)

Risks: Any hindrance such as beet harvest supply disruptions would take a toll on the overall performance of the Company. As the Company deals in commodity, there is a risk related to mark-to-market related to price volatility of commodity prices.

Valuation Methodology: Price to Earnings based Relative Valuation (illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The stock of RSI corrected ~6% so far this year, amidst a free-fall in the global equity market. The company's products are categorized as 'essentials' and are immune to the economic cycle, and the production units are running at full capacity. The demand is expected to remain favorable in the quarters, which is a key positive, and it ensures stable income flow for the company. Further, the company also expects, FY20 export volumes of sugar to be higher than FY19, which is encouraging. Within the Maple segment, the company is seeking to retain its market share and improving its competitive advantage and looking to reduce the operating costs and drive new sales volumes through expansion in new markets and pushing the volumes of its value-added products. The company has liquidity of ~CAD 201.0 million under its revolving credit facility, which would help the company to sail through the current challenging environment. Further, the group is offering a dividend yield of ~7.8%, which is attractive amid lower interest rate environment. We have valued the stock using the Price to Earnings based relative valuation approach and arrived at a target price offering double-digit upside potential (in % terms). For the said purpose, we have considered industry (consumer non-cyclical) median on NTM basis. Hence, we recommend a 'Speculative Buy' rating on the stock at the closing market price of CAD 4.60 as on July 08, 2020.

RSI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

The advice given by Kalkine Canada Advisory Services Inc. and provided on this website is general information only and it does not take into account your investment objectives, financial situation and the particular needs of any particular person. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. The website www.kalkine.ca is published by Kalkine Canada Advisory Services Inc. The link to our Terms & Conditions has been provided please go through them. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations later.